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Bank of Canada Hits Pause Button on Interest Rates

Posted By: Rachel Kavanagh

May 2, 2019

Bank of Canada Hits Pause Button on Interest Rates – Bank of Canada Governor Stephen Poloz announced that the economy will grow much more slowly than expected this year. Factors affecting the slow growth include global trade disputes, slumping investment in the oil and housing sectors, Premier Doug Ford’s provincial budget and the winter weather.

All of these factors contributed to the Bank of Canada downgrading its forecast for growth from an estimated 1.7% to 1.2 %. The Bank of Canada estimated that the economy grew at an annual rate of just 0.3% in the first three months of the year. Mr Poloz characterized the slow start to the year as a “bit of a detour” rather than a permanent setback, adding that a rebound may already be underway. The consensus amongst economists is that for Canada’s economy to grow 1.5% this year. If the Bank of Canada is right, 2019 would be the weakest year for the economy since 2016.

This slow growth prompted the bank to abandon talks of hiking interest rates, indicating the economy still needs low rates to counter a global economic slump and weak business activity at home.

The central bank left its key interest rate unchanged at 1.75 % and made no mention of raising its interest rate further. Something that the Bank of Canada has consistently been mentioning in other statements.

For borrowers, an official halt to hikes by the bank means rates on mortgages and other loans may already have peaked. Rates on five-year fixed mortgages have fallen more than half a percentage point in recent months. Although it may seem that interest rates have hit their peak, it does not mean that the bank will begin cutting rates. It just means that they have pressed the pause button. Mr Poloz said an eventual rate hike is still “more likely” than a cut.

Interest rate relief “continues to warranted” stated the bank. “We will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrives”. Higher borrowing costs and tighter mortgage rules “appear to be having larger and more prolonged effects on residential investment” and some rate-sensitive consumer spending.

The bank says the housing sector is showing early signs it may be stabilizing, particularly in and around Toronto.

Bank of Canada Hits Pause Button on Interest Rates written by Benczik Team Realty

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